WACR climbs to 6.69% amid banking system liquidity deficit

The weighted average call rate, which indicates banks’ overnight cost of borrowing, closed at 6.69% on Thursday, 19 basis point higher than the Reserve Bank of India‘s current repo rate of 6.50%, due to deficit liquidity conditions in the banking system, money market dealers said.

The WACR, which is the operating target of the RBI’s monetary policy, was at 6.68% the previous day. The WACR rises when liquidity conditions in the banking system are in a deficit mode.

The banking system liquidity, as measured by net injection of funds by the RBI, stood at a deficit of Rs. 33,447 crore, as of September 23, central bank data showed.

Banking system liquidity is in a deficit mode due to advance tax payments and goods and services tax (GST) outflows and is expected to go back in surplus mode in October as government spending kicks off again, said market participants.

To ease liquidity conditions, the RBI conducted short term variable rate repo (VRR) auctions on Monday and Tuesday worth Rs. 1,00,101

The VRR auction is just one of the many tools that the RBI can use to pump in liquidity into the banking system when it is in a deficit mode.Yields on the 10 year benchmark government security remained steady, and closed at 6.76% on Tuesday, unchanged from the previous day.